Current Issues in Financial Markets

FRM® Part II, published weight 10%. This cycle’s readings — AI in finance, climate risk, digital assets, bank stress.

What the outline covers

A rotating set of readings, replaced substantially each year
Artificial intelligence and machine learning in finance
Climate and transition risk
Digital assets and stablecoins
Cyber and operational resilience
Post-2023 banking-stress lessons

Sample questions

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Question 1

The Current Issues topic differs from every other FRM topic area because it:

A. Is not examined
B. Is replaced substantially each exam cycle
C. Contains only quantitative material
D. Carries the largest weight in Part II

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B. The reading list rotates each year, so prior-year materials are unreliable. GARP publishes the current list directly.

Reading: Current Issues in Financial Markets — Scope

Question 2

The principal supervisory concern with machine learning models used in credit decisions is:

A. Their computational cost
B. Limited explainability and the resulting model governance gap
C. Their inability to handle large datasets
D. That they cannot be backtested

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B. Supervisors expect firms to explain credit decisions. Opaque models create a governance problem: who validates a model nobody fully understands.

Reading: Current Issues — AI and Machine Learning in Finance

Question 3

A scenario describing rapid, well-signalled decarbonisation policy is best characterised as:

A. High physical risk and low transition risk
B. Low physical risk and high transition risk
C. High physical and high transition risk
D. Low physical and low transition risk

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B. Fast policy action raises transition risk for exposed sectors while limiting the warming that drives physical risk. The scenarios deliberately trade the two off.

Reading: Current Issues — Climate and Transition Risk

Question 4

The 2023 US regional banking stress is best explained by the interaction of:

A. Credit losses on commercial loans and inadequate provisions
B. Unrealised duration losses and concentrated, digitally mobile uninsured deposits
C. Operational failures in payment systems
D. Counterparty defaults in the derivatives market

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B. Held-to-maturity portfolios carried large unrealised losses while a concentrated uninsured deposit base withdrew faster than liquidity rules assumed.

Reading: Current Issues — Post-2023 Banking Stress

Question 5

A key financial stability concern with fiat-referenced stablecoins is that they:

A. Cannot be transferred across borders
B. Are subject to run dynamics if reserve quality or redemption is doubted
C. Pay a variable interest rate to holders
D. Are always fully insured by deposit schemes

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B. A stablecoin is a redeemable claim on a reserve pool. Doubt about reserve quality or redemption capacity produces classic run dynamics.

Reading: Current Issues — Digital Assets and Stablecoins

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